Rockford businessman gets more than 7 years in Ponzi scheme

Wednesday

May 21, 2014 at 11:39 AMMay 21, 2014 at 2:50 PM

By Alex GaryRockford Register Star

ROCKFORD — Former Commercial Mortgage & Finance CEO Anthony D’Agostino was sentenced to 7½ years in federal prison Wednesday morning, about 5½ years after the finance company he ran failed in the darkest days of the Great Recession.

The 79-year-old D’Agostino was found guilty in January by U.S. District Judge Frederick Kapala of essentially running CMF as a Ponzi scheme the final five years it was in business. Kapala found D’Agostino guilty of 17 counts of mail fraud, one count of wire fraud and one count of securities fraud.

D’Agostino also was ordered to pay restitution of $49.4 million to the CMF investors, and Kapala will enter a forfeiture finding of several million more at a later date. The restitution total is the amount lost by more than 1,400 investors after the company had been liquidated in bankruptcy.

The reality though is D’Agostino likely has little left in personal assets to pay back investors any more than what was recovered by the bankruptcy court. The only justice for many of the surviving investors was whether or not D’Agostino would serve any prison time.

Prosecutors said D’Agostino did not set out to defraud investors when he bought the failing business back in 1997. CMF was founded in 1929 and based at 115 Seventh St. But as the years rolled on and the company’s losses accumulated, CMF began selling promissory notes at slightly higher interest rates than what was being offered at banks to keep new money rolling in. The business used the new notes to pay off old ones and when the Great Recession — which caused the demise of such financial behemoths as Lehman Brothers and Washington Mutual — caused the banking industry to nearly collapse CMF couldn’t find enough new investors to keep the Ponzi scheme running. CMF filed for bankruptcy protection on Oct. 8, 2008.

Six of CMF’s investors came to the sentencing hearing along with Brad Koch, an attorney who represented the creditors during the bankruptcy. John Crull of Rockford, who lost $130,000 when CMF failed, left unsatisfied.

“What am I going to do, it was a judge trial?” Crull said. “If it was a jury trial they would have hung him.”

Nearly 20 of D’Agostino’s friends and family members came to show support. The defense asked Kapala to sentence him to probation and community service, arguing that his advanced age and a variety of health problems made him a poor candidate for prison and that a prison sentence would add little deterrence value because his business reputation is “destroyed.”

D’Agostino also made a statement to the court, acknowledging that it was his policies and decisions that led to the collapse of the company — although he continued to also blame the failing economy.

“The losses were painful both financially and emotionally,” he said. I’m deeply sorry for the stress and hardship this has caused the investors in the past 5 1/2 years.”

Kapala didn’t agree with the defense arguments, saying that “deterrence is especially important in white collar crimes” because there are millions of people every day handling the money of others.

To illustrate the seriousness of the CMF failure, Kapala read through several of the victim impact statements provided to the court. They included: an investor who lost the money meant to care for a quadriplegic daughter; another who lost a son’s college savings as well as the money to care for an aging, ailing mother; and another who lost the entire savings left by parents from their 40-year teaching careers.

One victim statement particularly bothered Kapala. That person wrote that he visited CMF three days before the company filed for bankruptcy and invested $25,000, increasing his overall investment in the company to $85,000. He did so unaware, as all of the other investors were, that CMF had been losing money since D’Agostino took it over in 1997.

The fact that CMF was still accepting investments when D’Agostino had to know the company was days away from failing showed a “callous disregard of the well-being” of his investors, Kapala said.

Still, Kapala did show leniency. According to his calculations, federal sentencing guidelines pointed him towards a sentence of 14 to 17½ years, but Kapala didn’t want to issue what would essentially be a life sentence. He cited a couple of sources estimating D’Agostino reasonably can expect to live another eight to 10 years, so he sentenced him to 7½.

Kapala did not order D’Agostino into custody Wednesday. He ordered him to report to whatever federal prison he is assigned to on July 14. D’Agostino’s defense is requesting that he be placed in a minimum-security prison in Beaumont, Texas.

The sentence was met with silence both from the investors and D’Agostino’s family. It likely wasn’t a shock. D’Agostino’s attorney, Scott Lassar of Chicago, said D’Agostino’s wife of more than 50 years, Corinne, plans to move to Texas to remain close to her husband. The D’Agostinos own a home on Dynasty Court in Rockford valued at nearly $340,000, according to Winnebago County tax records.

D’Agostino, with his wife and legal team, declined to comment on the sentence when he left the courtroom.

Alex Gary: 815-987-1339; agary@rrstar.com; @alexpgary

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